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Section 1: 10-Q (10-Q)

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Table of Contents

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-34257
394562429_ufglogo2017a22.jpg
________________________
 UNITED FIRE GROUP, INC.
(Exact name of registrant as specified in its charter)
____________________________
 
 
 
Iowa
 
45-2302834
 
 
 
 
(State of Incorporation)
 
(IRS Employer Identification No.)
 
 

118 Second Avenue, S.E., Cedar Rapids, Iowa 52401
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (319) 399-5700

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer 
Accelerated filer  
 
Non-accelerated filer  
 
Smaller reporting company
 
Emerging growth company
 
 
 
 
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES
NO
As of August 6, 2018, 25,050,267 shares of common stock were outstanding.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Table of Contents

United Fire Group, Inc.
Index to Quarterly Report on Form 10-Q
June 30, 2018
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Table of Contents

FORWARD-LOOKING INFORMATION
This report may contain forward-looking statements about our operations, anticipated performance and other similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor under the Securities Act of 1933 (the "Securities Act") and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for forward-looking statements. The forward-looking statements are not historical facts and involve risks and uncertainties that could cause actual results to differ from those expected and/or projected. Such forward-looking statements are based on current expectations, estimates, forecasts and projections about United Fire Group, Inc. ("UFG," the "Registrant," the "Company," "we," "us," or "our"), the industry in which we operate, and beliefs and assumptions made by management. Words such as "expect(s)," "anticipate(s)," "intend(s)," "plan(s)," "believe(s)," "continue(s)," "seek(s)," "estimate(s)," "goal(s)," "target(s)," "forecast(s)," "project(s)," "predict(s)," "should," "could," "may," "will," "might," "hope," "can" and other words and terms of similar meaning or expression in connection with a discussion of future operations, financial performance or financial condition, are intended to identify forward-looking statements. See Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2017 and Part II, Item 1A "Risk Factors" of this report for more information concerning factors that could cause actual results to differ materially from those in the forward-looking statements.
Risks and uncertainties that may affect the actual financial condition and results of the Company include, but are not limited to, the following:

The frequency and severity of claims, including those related to catastrophe losses and the impact those claims have on our loss reserve adequacy; the occurrence of catastrophic events, including international events, significant severe weather conditions, climate change, acts of terrorism, acts of war and pandemics;
The adequacy of our reserves for property and casualty insurance losses and loss settlement expenses;
Geographic concentration risk in the property and casualty insurance business;
The potential disruption of our operations and reputation due to unauthorized data access, cyber-attacks or cyber-terrorism and other security breaches;
Developments in general economic conditions, domestic and global financial markets, interest rates and other-than-temporary impairment losses that could affect the performance of our investment portfolio;
Our ability to effectively underwrite and adequately price insured risks;
Changes in industry trends, an increase in competition and significant industry developments;
Litigation or regulatory actions that could require us to pay significant damages, fines or penalties or change the way we do business;
Lowering of one or more of the financial strength ratings of our operating subsidiaries or our issuer credit ratings and the adverse impact such action may have on our premium writings, policy retention, profitability and liquidity;
Governmental actions, policies and regulations, including, but not limited to, domestic health care reform, financial services regulatory reform, corporate governance, new laws or regulations or court decisions interpreting existing laws and regulations or policy provisions; changes in laws, regulations and stock exchange requirements relating to corporate governance and the cost of compliance;
Our relationship with and the financial strength of our reinsurers; and
Competitive, legal, regulatory or tax changes that affect the distribution cost or demand for our products through our independent agent/agency distribution network.

These are representative of the risks, uncertainties, and assumptions that could cause actual outcomes and results to differ materially from what is expressed in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report or as of the date they are made. Except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission ("SEC"), we do not have any intention or obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.



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Table of Contents

PART I — FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
  
United Fire Group, Inc.
Consolidated Balance Sheets
(In Thousands, Except Share Data)
June 30,
2018
 
December 31,
2017
 
(unaudited)
 
 
ASSETS
 
 
 
Investments
 
 
 
Fixed maturities
 
 
 
Held-to-maturity, at amortized cost (fair value $150 in 2018 and $150 in 2017)
$
150

 
$
150

Available-for-sale, at fair value (amortized cost $1,811,473 in 2018 and $1,516,610 in 2017)
1,792,019

 
1,535,070

Trading securities, at fair value (amortized cost $12,704 in 2018 and $14,582 in 2017)
14,705

 
16,842

Equity securities at fair value (cost $64,092 in 2018 and $63,275 in 2017)
260,979

 
287,344

Mortgage loans
9,896

 

Other long-term investments
43,949

 
49,352

Short-term investments
175

 
175

 
2,121,873

 
1,888,933

Cash and cash equivalents
100,840

 
95,562

Accrued investment income
15,716

 
13,841

Premiums receivable (net of allowance for doubtful accounts of $988 in 2018 and $1,255 in 2017)
380,242

 
328,513

Deferred policy acquisition costs
95,065

 
88,102

Property and equipment (primarily land and buildings, at cost, less accumulated depreciation of $53,603 in 2018 and $51,603 in 2017)
80,128

 
68,992

Reinsurance receivables and recoverables
58,810

 
63,194

Prepaid reinsurance premiums
4,902

 
3,749

Deferred tax asset
4,482

 

Income taxes receivable

 
6,031

Goodwill and intangible assets
23,606

 
23,971

Other assets
16,512

 
16,409

Assets held for sale

 
1,586,134

TOTAL ASSETS
$
2,902,176

 
$
4,183,431

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Liabilities
 
 
 
Losses and loss settlement expenses
$
1,240,847

 
$
1,224,183

Unearned premiums
517,732

 
465,391

Accrued expenses and other liabilities
173,458

 
167,396

Income taxes payable
5,539

 

Deferred income taxes

 
5,953

Liabilities held for sale

 
1,347,135

TOTAL LIABILITIES
$
1,937,576

 
$
3,210,058

Stockholders’ Equity
 
 
 
Common stock, $0.001 par value; authorized 75,000,000 shares; 25,043,967 and 24,916,806 shares issued and outstanding in 2018 and 2017, respectively
$
25

 
$
25

Additional paid-in capital
199,442

 
196,334

Retained earnings
824,431

 
608,700

Accumulated other comprehensive income (loss), net of tax
(59,298
)
 
168,314

TOTAL STOCKHOLDERS’ EQUITY
$
964,600

 
$
973,373

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
2,902,176

 
$
4,183,431

The Notes to unaudited Consolidated Financial Statements are an integral part of these statements.


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Table of Contents

United Fire Group, Inc.
Consolidated Statements of Income and Comprehensive Income (Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In Thousands, Except Share Data)
2018
 
2017
 
2018
 
2017
Revenues
 
 
 
 
 
 
 
Net premiums earned
$
256,853

 
$
245,222

 
$
502,020

 
$
481,666

Investment income, net of investment expenses
17,249

 
12,184

 
30,741

 
24,769

Net realized investment gains (losses) (includes reclassifications for net unrealized investment gains/(losses) on available-for-sale securities of ($196) and ($159) in 2018 and $1,975 and $5,380 in 2017; previously included in accumulated other comprehensive income)
1,297


1,081

 
(6,567
)
 
3,330

Total revenues
$
275,399

 
$
258,487

 
$
526,194

 
$
509,765

Benefits, Losses and Expenses
 
 
 
 
 
 
 
Losses and loss settlement expenses
$
189,146

 
$
188,596

 
$
333,874

 
$
345,148

Amortization of deferred policy acquisition costs
50,810

 
51,398

 
100,449

 
101,859

Other underwriting expenses (includes reclassifications for employee benefit costs of $1,661 and $3,321 in 2018 and $1,352 and $2,704 in 2017; previously included in accumulated other comprehensive income)
37,252

 
22,824

 
72,107

 
44,083

Total benefits, losses and expenses
$
277,208

 
$
262,818

 
$
506,430

 
$
491,090

Income (loss) from continuing operations before income taxes
$
(1,809
)
 
$
(4,331
)
 
$
19,764

 
$
18,675

Federal income tax benefit (includes reclassifications of $390 and $731 in 2018 and ($219) and ($937) in 2017; previously included in accumulated other comprehensive income)
(1,966
)
 
(4,440
)
 
(757
)
 
(18
)
Income from continuing operations
$
157

 
$
109

 
$
20,521

 
$
18,693

Income (loss) from discontinued operations, net of taxes

 
2,849

 
(1,912
)
 
4,201

Gain on sale of discontinued operations, net of taxes

 

 
27,307

 

Net income
$
157

 
$
2,958

 
$
45,916

 
$
22,894

Other comprehensive income
 
 
 
 
 
 
 
Change in net unrealized appreciation on investments
$
(6,199
)
 
$
30,653

 
$
(58,013
)
 
$
45,619

Change in liability for underfunded employee benefit plans

 

 

 

Other comprehensive income (loss), before tax and reclassification adjustments
$
(6,199
)
 
$
30,653

 
$
(58,013
)
 
$
45,619

Income tax effect
1,301

 
(10,729
)
 
12,182

 
(15,967
)
Other comprehensive income (loss), after tax, before reclassification adjustments
$
(4,898
)
 
$
19,924

 
$
(45,831
)
 
$
29,652

Reclassification adjustment for net realized investment (gains) losses included in income
$
196

 
$
(1,975
)
 
$
159

 
$
(5,380
)
Reclassification adjustment for employee benefit costs included in expense
1,661

 
1,352

 
3,321

 
2,704

Total reclassification adjustments, before tax
$
1,857

 
$
(623
)
 
$
3,480

 
$
(2,676
)
Income tax effect
(390
)
 
219

 
(731
)
 
937

Total reclassification adjustments, after tax
$
1,467

 
$
(404
)
 
$
2,749

 
$
(1,739
)
Comprehensive income (loss)
$
(3,274
)
 
$
22,478

 
$
2,834

 
$
50,807

Diluted weighted average common shares outstanding
25,611,773

 
25,624,686

 
25,582,708

 
25,752,525

Earnings per common share from continuing operations:
 
 
 
 
 
 
 
Basic
$
0.01

 
$
0.01

 
$
0.82

 
$
0.74

Diluted
0.01

 
0.01

 
0.80

 
0.73

Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.01

 
$
0.12

 
$
1.84

 
$
0.91

Diluted
0.01

 
0.12

 
1.80

 
0.89

The Notes to unaudited Consolidated Financial Statements are an integral part of these statements.


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United Fire Group, Inc.
Consolidated Statement of Stockholders’ Equity (Unaudited)

(In Thousands, Except Share Data)
Six Months Ended June 30, 2018
 
 
Common stock
 
Balance, beginning of year
$
25

Shares repurchased (120,372 shares)

Shares issued for stock-based awards (246,633 shares)

Balance, end of period
$
25

 
 
Additional paid-in capital
 
Balance, beginning of year
$
196,334

Compensation expense and related tax benefit for stock-based award grants
2,718

Shares repurchased
(5,404
)
Shares issued for stock-based awards
5,794

Balance, end of period
$
199,442

 
 
Retained earnings
 
Balance, beginning of year
$
608,700

Cumulative effect of change in accounting principle
191,244

Net unrealized investment depreciation of discontinued operations, sold
(6,714
)
Net income
45,916

Dividends on common stock ($0.59 per share)
(14,715
)
Balance, end of period
$
824,431

 
 
Accumulated other comprehensive income (loss), net of tax
 
Balance, beginning of year
$
168,314

Cumulative effect of change in accounting principle
(191,244
)
Change in net unrealized investment appreciation(1)
(38,991
)
Change in liability for underfunded employee benefit plans(2)
2,623

Balance, end of period
$
(59,298
)
 
 
Summary of changes
 
Balance, beginning of year
$
973,373

Net income
45,916

All other changes in stockholders’ equity accounts
(54,689
)
Balance, end of period
$
964,600

(1)
The change in net unrealized appreciation is net of reclassification adjustments and income taxes.
(2)
The change in liability for underfunded employee benefit plans is net of reclassification adjustments and income taxes.

The Notes to unaudited Consolidated Financial Statements are an integral part of these statements.



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United Fire Group, Inc.
Consolidated Statements of Cash Flows (Unaudited)

Six Months Ended June 30,
(In Thousands)
2018
 
2017
Cash Flows From Operating Activities
 
 
 
Net income
$
45,916

 
$
22,894

Less net income (loss) from discontinued operations, net of taxes
(1,912
)
 
4,201

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Net accretion of bond premium
4,324

 
4,517

Depreciation and amortization
2,316

 
2,333

Stock-based compensation expense
2,718

 
2,254

Net realized investment (gains) losses
6,567

 
(3,330
)
Net cash flows from equity and trading investments
21,839

 
(1,524
)
Deferred income tax benefit
(8,836
)
 
(2,833
)
Changes in:
 
 
 
Accrued investment income
(1,875
)
 
(643
)
Premiums receivable
(51,729
)
 
(55,664
)
Deferred policy acquisition costs
(6,963
)
 
(8,041
)
Reinsurance receivables
4,384

 
(4,431
)
Prepaid reinsurance premiums
(1,153
)
 
(184
)
Income taxes receivable
6,031

 
6,300

Other assets
(102
)
 
(484
)
Losses and loss settlement expenses
16,664

 
56,582

Unearned premiums
52,341

 
58,542

Accrued expenses and other liabilities
9,383

 
14,460

Income taxes payable
5,539

 

Deferred income taxes
(14,054
)
 
(2,308
)
Other, net
1,253

 
2,927

Cash from operating activities - continuing operations
48,647

 
68,473

Cash from operating activities - discontinued operations
4,023

 
24,968

Cash from operating activities - gain on sale of discontinued operations
(34,851
)
 

Total adjustments
$
17,819

 
$
93,441

Net cash provided by operating activities
$
65,647

 
$
112,134

Cash Flows From Investing Activities
 
 
 
Proceeds from sale of available-for-sale investments
$
23,994

 
$
1,096

Proceeds from call and maturity of available-for-sale investments
60,651

 
76,183

Proceeds from short-term and other investments
5,816

 
3,185

Proceeds from the sale of discontinued operations
276,055

 

Purchase of available-for-sale investments
(383,633
)
 
(112,472
)
Purchase of mortgage loans
(9,896
)
 

Purchase of short-term and other investments
(1,995
)
 
(2,852
)
Net purchases and sales of property and equipment
(13,012
)
 
(3,861
)
Cash from investing activities - continuing operations
(42,020
)
 
(38,721
)
Cash from investing activities - discontinued operations
14,343

 
13,956

Net cash used in investing activities
$
(27,677
)
 
$
(24,765
)
Cash Flows From Financing Activities
 
 
 
Payment of cash dividends
$
(14,716
)
 
$
(13,380
)
Repurchase of common stock
(5,404
)
 
(21,184
)
Issuance of common stock
5,794

 
2,207

Cash from financing activities - continuing operations
(14,326
)
 
(32,357
)
Cash from financing activities - discontinued operations
(11,547
)
 
(35,444
)
Net cash used in financing activities
$
(25,873
)
 
$
(67,801
)
Net Change in Cash and Cash Equivalents
$
12,097

 
$
19,568

Less: increase in cash and cash equivalents - discontinued operations
(6,819
)
 
(3,480
)
Net increase in cash and cash equivalents - continuing operations
5,278

 
16,088

Cash and Cash Equivalents at Beginning of Period - Continuing Operations
95,562

 
89,194

Cash and Cash Equivalents at End of Period - Continuing Operations
$
100,840

 
$
105,282

The Notes to unaudited Consolidated Financial Statements are an integral part of these statements.


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UNITED FIRE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share amounts or as otherwise noted)

NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature of Business
United Fire Group, Inc. ("UFG," the "Registrant," the "Company," "we," "us," or "our") and its consolidated subsidiaries and affiliates are engaged in the business of writing property and casualty insurance through a network of independent agencies. Our insurance company subsidiaries are licensed as a property and casualty insurer in 46 states and the District of Columbia.
Discontinued Operations
We have historically reported our operations in two business segments: property and casualty insurance and life insurance. On September 18, 2017, the Company signed a definitive agreement to sell its subsidiary, United Life Insurance Company ("United Life"), to Kuvare US Holdings, Inc. ("Kuvare") and on March 30, 2018, the sale closed. As a result, the life insurance business, previously a separate segment, was considered held for sale and reported as discontinued operations in the Consolidated Balance Sheets, Consolidated Statements of Income and Comprehensive Income and Consolidated Statements of Cash Flows for all periods presented in this Form 10-Q (collectively, the "Consolidated Financial Statements"). Subsequent to the announcement of this sale, our continuing operations were reported as one business segment. All current and prior periods reflected in this Form 10-Q have been presented as continuing and discontinued operations, as applicable, unless otherwise noted. For more information, refer to Note 11. Discontinued Operations.
Basis of Presentation
The unaudited consolidated interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial reporting and with the instructions to Form 10-Q and Regulation S-X promulgated by the SEC. Certain financial information that is included in our Annual Report on Form 10-K for the year ended December 31, 2017, including certain financial statement footnote disclosures, is not required by the rules and regulations of the SEC for interim financial reporting and have been condensed or omitted.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The financial statement categories that are most dependent on management estimates and assumptions include: investments; deferred policy acquisition costs; reinsurance receivables and recoverables; future policy benefits and losses, and loss settlement expenses; and pension and postretirement benefit obligations.
Certain prior year amounts have been reclassified to conform to the current year presentation.
Management of UFG believes the accompanying unaudited Consolidated Financial Statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. All significant intercompany transactions have been eliminated in consolidation. The results reported for the interim periods are not necessarily indicative of the results of operations that may be expected for the year. The unaudited Consolidated Financial Statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2017. The review report of Ernst & Young LLP as of June 30, 2018 and for the three- and six-month periods ended June 30, 2018 and 2017 accompanies the unaudited Consolidated Financial Statements included in Part I, Item 1 "Financial Statements."



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Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash, money market accounts, and non-negotiable certificates of deposit with original maturities of three months or less.
For the six-month periods ended June 30, 2018 and 2017, we made payments for income taxes for continuing operations totaling $15,037 and $7,628, respectively. We received a tax refund of $1,503 and $10,000 for the six-month periods ended June 30, 2018 and 2017, respectively.
For the six-month periods ended June 30, 2018 and 2017, we made no interest payments (excluding interest credited to policyholders’ accounts).
Deferred Policy Acquisition Costs ("DAC")

Certain costs associated with underwriting new business (primarily commissions, premium taxes and variable underwriting and policy issue expenses associated with successful acquisition efforts) are deferred. The following table is a summary of the components of DAC, including the related amortization recognized for the six-month period ended June 30, 2018.
 
 
 
 
 
Continuing Operations
 
Discontinued Operations
 
 
 
Property & Casualty Insurance
 
Life Insurance
 
Total
Recorded asset at beginning of period
$
88,102

 
$
71,151

 
$
159,253

Underwriting costs deferred
107,412

 
1,376

 
108,788

Amortization of deferred policy acquisition costs
(100,449
)
 
(1,895
)
 
(102,344
)
Ending unamortized deferred policy acquisition costs
$
95,065

 
$
70,632

 
$
165,697

Impact of unrealized gains and losses on available-for-sale securities

 
7,274

 
7,274

Sale of discontinued operations

 
(77,906
)
 
(77,906
)
Recorded asset at June 30, 2018
$
95,065

 
$

 
$
95,065


Property and casualty insurance policy acquisition costs deferred are amortized as premium revenue is recognized. The method followed in computing DAC limits the amount of such deferred costs to their estimated realizable value. This takes into account the premium to be earned, losses and loss settlement expenses expected to be incurred and certain other costs expected to be incurred as the premium is earned.

For traditional life insurance policies, DAC is amortized to income over the premium-paying period in proportion to the ratio of the expected annual premium revenue to the expected total premium revenue. Expected premium revenue and gross profits are based on the same mortality and withdrawal assumptions used in determining future policy benefits. These assumptions are not revised after policy issuance unless the recorded DAC asset is deemed to be unrecoverable from future expected profits.

For non-traditional life insurance policies, DAC is amortized over the anticipated terms in proportion to the ratio of the expected annual gross profits to the total expected gross profits. Changes in the amount or timing of expected gross profits result in adjustments to the cumulative amortization of these costs. The effect on amortization of DAC for revisions to estimated gross profits is reported in earnings in the period the estimated gross profits are revised.

The effect on DAC that results from the assumed realization of unrealized gains (losses) on investments allocated to non-traditional life insurance business is recognized with an offset to net unrealized investment appreciation as of the balance sheet date. The impact of unrealized gains and losses on available-for-sale securities decreased the DAC asset by $6,294 at December 31, 2017. There was no impact of unrealized gains and losses on available-for-sale


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securities on the DAC asset at June 30, 2018 because the non-traditional life insurance business is part of discontinued operations, which was sold on March 30, 2018.
Income Taxes

The Tax Cuts and Jobs Act of 2017 (the "Tax Act") was enacted on December 22, 2017. The Tax Act significantly revised the U.S. corporate income tax laws including lowering the U.S. federal corporate tax rate from 35 percent to 21 percent, effective January 1, 2018.

In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, which addresses how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed in reasonable detail to complete its accounting for the effect of the changes in the Tax Act. The measurement period ends when a company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. As of June 30, 2018 we had not completed accounting for the tax effects of enactment of the Tax Act, however for certain items, we have made a reasonable estimate of the effects on our deferred tax balances. For other items where we could not make a reasonable estimate, we are still using existing accounting guidance and the provisions of the tax laws that were in place prior to the enactment. The Company will continue to refine this estimated provisional adjustment as we gain a more thorough understanding of the effects of enactment of the Tax Act on the Company, and the Company will take future guidance into consideration when it becomes available.
Deferred tax assets and liabilities are established based on differences between the financial statement bases of assets and liabilities and the tax bases of those same assets and liabilities, using the currently enacted statutory tax rates. Deferred income tax expense is measured by the year-to-year change in the net deferred tax asset or liability, except for certain changes in deferred tax amounts that affect stockholders' equity and do not impact federal income tax expense.
We reported consolidated federal income tax expense from continuing and discontinued operations of $7,350 and $2,250 for the six-month periods ended June 30, 2018 and 2017, respectively. Our effective tax rate is different than the federal statutory rate of 21 percent, due principally to the effect of tax-exempt municipal bond interest income and non-taxable dividend income.
The Company performs a quarterly review of its tax positions and makes a determination of whether it is more likely than not that the tax position will be sustained upon examination. If, based on review, it appears not more likely than not that the positions will be sustained, the Company will calculate any unrecognized tax benefits and, if necessary, calculate and accrue any related interest and penalties. We did not recognize any liability for unrecognized tax benefits at June 30, 2018 or December 31, 2017. In addition, we have not accrued for interest and penalties related to unrecognized tax benefits. However, if interest and penalties would need to be accrued related to unrecognized tax benefits, such amounts would be recognized as a component of federal income tax expense.

With regard to the sale of the life insurance subsidiary, federal income taxes were allocated to continuing and discontinued operations in accordance with the Company’s tax allocation agreement and the terms of the definitive agreement related to the sale.
We file a consolidated federal income tax return. We also file income tax returns in various state jurisdictions. We are no longer subject to federal or state income tax examination for years before 2014.

Subsequent Events

In the preparation of the accompanying financial statements, the Company has evaluated all material subsequent events or transactions that occurred after the balance sheet date through the date on which the financial statements were issued for potential recognition or disclosure in the Company's financial statements. On July 24, 2018, the Company's Board of Directors declared a special cash dividend of $3.00 per share or a total of approximately $75,000 payable August 20, 2018 to shareholders of record as of August 3, 2018. This dividend will be recorded in


8

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the Company's financial statements in the three months ended September 30, 2018. The Company concluded there are no other material subsequent events or transactions that have occurred after the balance sheet date through the date on which the financial statements were issued.
Recently Issued Accounting Standards
Accounting Standards Adopted in 2018
Revenue Recognition
In May 2014, the FASB issued comprehensive new guidance on revenue recognition which supersedes nearly all existing revenue recognition guidance under GAAP. The new guidance requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The standard creates a five-step model that requires companies to exercise judgment when considering the terms of the contract(s) and all relevant facts and circumstances. Insurance contracts are not within the scope of this new guidance. The new guidance is effective for annual and interim periods beginning after December 15, 2017. The Company adopted the guidance as of January 1, 2018. The adoption of the new guidance had no impact on the Company's reporting and disclosure of net premiums earned from insurance contracts, net investment income or net realized gains and losses, as these revenue streams are not within the scope of this new guidance. The remaining revenue streams are immaterial and not impacted by the new standard.
Financial Instruments
In January 2016, the FASB issued guidance updating certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments in this update supersede the guidance to classify equity securities with readily determinable fair values into different categories (for example, trading or available-for-sale) and require equity securities to be measured at fair value with changes in the fair value recognized through net income. The new guidance also simplifies the impairment process for equity investments without readily determinable fair values. The new guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those years. The Company adopted the new guidance as of January 1, 2018. The adoption of the new guidance resulted in a reclassification from accumulated other comprehensive income to retained earnings of $191,244 after tax, which is equal to the amount of net unrealized gains and losses on available-for-sale equity securities on January 1, 2018. Also, in the three- and six-month periods ended June 30, 2018, the Company recognized an after-tax net realized investment gain of $241 and an after-tax net realized investment loss of $7,879, respectively, in net income from the change in value of equity securities due to the adoption of this new accounting guidance.
Statement of Cash Flows - Classification of Certain Cash Receipts and Payments
In August 2016, the FASB issued an update that clarifies the classification of certain cash receipts and payments in the Statement of Cash Flows. The update addresses eight existing cash flow issues by clarifying the correct classification to establish uniformity in practice. The updated guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those years. The Company adopted the new guidance as of January 1, 2018. The adoption had no impact on the Company's financial position and results of operations.
Defined Benefit Retirement Plan Cost
In March 2017, the FASB issued guidance on the presentation of net periodic benefit costs of defined benefit retirement benefit plans in the Statements of Income. The new guidance requires the service cost component of net periodic benefit cost of defined benefit plans to be presented in the same line in the Statements of Income as other employee compensation expenses. Also, under the new guidance, the service cost component of the net periodic benefit costs will be the only portion of costs subject to be capitalized in assets. The new guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those years. The Company adopted the new guidance as of January 1, 2018. The adoption of the new guidance resulted in a change in the capitalization


9

Table of Contents

of deferred acquisition costs to only include the pension and post retirement service costs in place of the total net periodic benefit costs. The adoption had an immaterial impact on the Company's financial position and results of operations. Additionally, the adoption did not impact the Company's presentation in the Statements of Income as all net periodic benefit costs and employee compensation expenses are included within the same category in the Statements of Income.
Share-Based Payments
In May 2017, the FASB issued new guidance which clarifies and addresses the diversity in practice when there is a change in the terms of a share-based payment award. The updated guidance clarifies when to use modification accounting when there is a change in the terms of a share-based payment and provides three conditions where modification accounting should not be applied. The new guidance is effective for annual and interim periods beginning after December 15, 2017. The Company adopted the new guidance as of January 1, 2018. The adoption had no impact on the Company's financial position and results of operations.
Pending Adoption of Accounting Standards
Leases
In February 2016, the FASB issued guidance on the accounting for leases. The new guidance requires lessees to place a right-of-use asset and a lease liability, for all leases with terms greater than 12 months, on their balance sheets. The lease liability will be based on the present value of the future lease payments and the asset will be based on the liability. Expenses will be recognized on the income statement in a similar manner as previous methods. The new guidance is effective for annual periods beginning after December 15, 2018 and interim periods within those years. The Company will adopt the new guidance using the package of practical expedients as of January 1, 2019. The Company has created an inventory of its operating leases and has calculated the undiscounted future minimum lease payments, which are disclosed in Note 13. Lease Commitments of the Company's Annual Report on Form 10-K for the year ended December 31, 2017. The undiscounted future minimum lease payments at December 31, 2017 is $22.5 million, which represents less than 1.0 percent of the Company's total assets at December 31, 2017. The Company plans to use their incremental borrowing rate of their credit facility described in Note 9. Credit Facility of this Form 10-Q, as the discount rate for calculating the minimum lease payments. The Company is reviewing and updating its processes and controls under the new guidance. Management currently believes that the adoption will not have a significant impact on the Company's financial position and results of operations.
Financial Instruments - Credit Losses
In June 2016, the FASB issued new guidance on the measurement of credit losses for most financial instruments. The new guidance replaces the current incurred loss model for recognizing credit losses with an expected loss model for instruments measured at amortized cost and requires allowances to be recorded for available-for-sale debt securities rather than reduce the carrying amount. These allowances will be remeasured each reporting period. The new guidance is effective for annual periods beginning after December 15, 2020 and interim periods within those years. The Company will adopt the new guidance as of January 1, 2021 and is currently evaluating the impact on the Company's financial position, results of operations and key processes.
Income Taxes - Intra-entity Transfers
In October 2016, the FASB issued new guidance on the income tax treatment of intra-entity transfers. The new guidance replaces the current guidance which prohibits the recognition of current and deferred income taxes of intra-entity transfers until the asset is sold externally. Under the new guidance, the exemption is eliminated and income taxes will be recognized on transfers of intra-entity assets. The new guidance is effective for annual periods beginning after December 15, 2018 and interim periods beginning after December 15, 2019. The Company will adopt the new guidance as of January 1, 2019 and is currently evaluating the impact on the Company's financial position and results of operations.



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Table of Contents

Goodwill
In January 2017, the FASB issued new guidance which simplifies the test for goodwill impairment. The new guidance eliminates the implied fair value calculation when measuring a goodwill impairment charge. Under the new guidance, impairment charges will be based on the excess of the carrying value over fair value of goodwill. The new guidance is effective for annual and interim periods beginning after December 15, 2019. The Company will adopt the new guidance as of January 1, 2020 and it currently believes the adoption will have no impact on the Company's financial position and results of operations.

NOTE 2. SUMMARY OF INVESTMENTS
Fair Value of Investments
A reconciliation of the amortized cost (cost for equity securities) to fair value of investments in held-to-maturity and available-for-sale fixed maturity and equity securities, presented on a consolidated basis, including both continuing and discontinued operations as of June 30, 2018 and December 31, 2017, is as follows:


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June 30, 2018
 
Type of Investment
Cost or Amortized Cost
 
Gross Unrealized Appreciation
 
Gross Unrealized Depreciation
 
Fair Value
HELD-TO-MATURITY
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
Bonds
 
 
 
 
 
 
 
Corporate bonds - financial services
$
150

 
$

 
$

 
$
150

Total Held-to-Maturity Fixed Maturities
$
150

 
$

 
$

 
$
150

AVAILABLE-FOR-SALE
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
Bonds
 
 
 
 
 
 
 
U.S. Treasury
$
120,272

 
$
23

 
$
341

 
$
119,954

U.S. government agency
196,348

 
633

 
2,712

 
194,269

States, municipalities and political subdivisions
 
 
 
 
 
 
 
General obligations:
 
 
 
 
 
 
 
Midwest
99,821

 
893

 
1,053

 
99,661

Northeast
40,913

 
385

 
187

 
41,111

South
119,745

 
612

 
2,040

 
118,317

West
110,147

 
916

 
1,492

 
109,571

Special revenue:
 
 
 
 
 
 
 
Midwest
143,606

 
1,368

 
1,208

 
143,766

Northeast
63,889

 
426

 
1,431

 
62,884

South
247,056

 
1,414

 
4,457

 
244,013

West
147,388

 
1,251

 
2,469

 
146,170

Foreign bonds
7,751

 
72

 

 
7,823

Public utilities
49,629

 
196

 
1,141

 
48,684

Corporate bonds

 

 

 

Energy
22,477

 
111

 
316

 
22,272

Industrials
42,286

 
143

 
486

 
41,943

Consumer goods and services
44,100

 
106

 
680

 
43,526

Health care
13,071

 
65

 
159

 
12,977

Technology, media and telecommunications
26,632

 
43

 
790

 
25,885

Financial services
73,501

 
182

 
1,746

 
71,937

Mortgage-backed securities
8,382

 
28

 
223

 
8,187

Collateralized mortgage obligations
 
 
 
 
 
 
 
Government national mortgage association
73,482

 
181

 
2,650

 
71,013

Federal home loan mortgage corporation
111,082

 
136

 
2,044

 
109,174

Federal national mortgage association
46,657

 
46

 
1,305

 
45,398

Asset-backed securities
3,238

 
325

 
79

 
3,484

Total Available-for-Sale Fixed Maturities
$
1,811,473

 
$
9,555

 
$
29,009

 
$
1,792,019





12

Table of Contents

December 31, 2017
 
Type of Investment
Cost or Amortized Cost
 
Gross Unrealized Appreciation
 
Gross Unrealized Depreciation
 
Fair Value
HELD-TO-MATURITY
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
Bonds
 
 
 
 
 
 
 
Corporate bonds - financial services
$
150

 
$

 
$

 
$
150

Mortgage-backed securities
34

 

 

 
34

Total Held-to-Maturity Fixed Maturities
$
184

 
$

 
$

 
$
184

AVAILABLE-FOR-SALE

 

 

 

Fixed maturities:

 

 

 

Bonds

 

 

 

U.S. Treasury
$
17,073

 
$
4

 
$
186

 
$
16,891

U.S. government agency
121,574

 
1,311

 
717

 
122,168

States, municipalities and political subdivisions
 
 
 
 
 
 
 
General obligations:
 
 
 
 
 
 
 
Midwest
107,689

 
2,446

 
439

 
109,696

Northeast
47,477

 
1,174

 
10

 
48,641

South
139,870

 
2,462

 
813

 
141,519

West
111,123

 
2,351

 
463

 
113,011

Special revenue:
 
 
 
 
 
 
 
Midwest
155,475

 
3,620

 
351

 
158,744

Northeast
79,028

 
1,351

 
619

 
79,760

South
260,145

 
5,218

 
1,851

 
263,512

West
156,576

 
2,929

 
1,198

 
158,307

Foreign bonds
51,361

 
1,441

 
49

 
52,753

Public utilities
206,028

 
3,386

 
270

 
209,144

Corporate bonds

 


 

 

Energy
93,191

 
1,972

 
110

 
95,053

Industrials
218,067

 
3,881

 
241

 
221,707

Consumer goods and services
183,253

 
3,498

 
494

 
186,257

Health care
74,125

 
1,312

 
29

 
75,408

Technology, media and telecommunications
146,853

 
2,376

 
250

 
148,979

Financial services
277,824

 
5,769

 
442

 
283,151

Mortgage-backed securities
13,828

 
101

 
238

 
13,691

Collateralized mortgage obligations
 
 
 
 
 
 
 
Government national mortgage association
157,836

 
1,921

 
2,274

 
157,483

Federal home loan mortgage corporation
201,320

 
1,879

 
4,047

 
199,152

Federal national mortgage association
104,903

 
1,703

 
1,174

 
105,432

Asset-backed securities
4,282

 
362

 
8

 
4,636

Total Available-for-Sale Fixed Maturities
$
2,928,901

 
$
52,467

 
$
16,273

 
$
2,965,095

Equity securities:

 

 

 

Common stocks

 

 

 



13

Table of Contents

Public utilities
$
6,394

 
$
16,075

 
$
30

 
$
22,439

Energy
6,514

 
8,171

 
120

 
14,565

Industrials
13,117

 
53,522

 
120

 
66,519

Consumer goods and services
10,110

 
15,742

 
164

 
25,688

Health care
7,763

 
32,340

 

 
40,103

Technology, media and telecommunications
6,067

 
11,556

 
115

 
17,508

Financial services
11,529

 
104,985

 
67

 
116,447

Nonredeemable preferred stocks
992

 
305

 

 
1,297

Total Available-for-Sale Equity Securities
$
62,486

 
$
242,696

 
$
616

 
$
304,566

Total Available-for-Sale Securities
$
2,991,387

 
$
295,163

 
$
16,889

 
$
3,269,661


The following table is a reconciliation of the amortized cost (cost for equity securities) to fair value of investments in held-to-maturity and available-for-sale fixed maturity and equity securities for continuing and discontinued operations by investment type at June 30, 2018 and December 31, 2017:

June 30, 2018
 
Type of Investment
Cost or Amortized Cost
 
Gross Unrealized Appreciation
 
Gross Unrealized Depreciation
 
Fair Value
HELD-TO-MATURITY
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
Continuing operations
$
150

 
$

 
$

 
$
150

Discontinued operations

 

 

 

Total Held-to-Maturity Fixed Maturities
$
150

 
$

 
$

 
150

AVAILABLE-FOR-SALE
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
Continuing operations
$
1,811,473

 
$
9,555

 
$
29,009

 
$
1,792,019

Discontinued operations

 

 

 

Total Available-for-Sale Fixed Maturities
$
1,811,473

 
$
9,555

 
$
29,009

 
$
1,792,019

Note: The sale of the life insurance business was completed on March 30, 2018.




14

Table of Contents

December 31, 2017
 
Type of Investment
Cost or Amortized Cost
 
Gross Unrealized Appreciation
 
Gross Unrealized Depreciation
 
Fair Value
HELD-TO-MATURITY
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
Continuing operations
$
150

 
$

 
$

 
$
150

Discontinued operations
34

 

 

 
34

Total Held-to-Maturity Fixed Maturities
$
184

 
$

 
$

 
$
184

AVAILABLE-FOR-SALE
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
Continuing operations
$
1,516,610

 
$
27,412

 
$
8,952

 
$
1,535,070

Discontinued operations
1,412,291

 
25,055

 
7,321

 
1,430,025

Total Available-for-Sale Fixed Maturities
2,928,901

 
52,467

 
16,273

 
2,965,095

Equity securities:
 
 
 
 
 
 
 
Continuing operations
$
57,387

 
$
224,065

 
$
539

 
$
280,913

Discontinued operations
5,099

 
18,631

 
77

 
23,653

Total Available-for-Sale Equity Securities
62,486

 
242,696

 
616

 
304,566

Total Available-for-Sale Securities
$
2,991,387

 
$
295,163

 
$
16,889

 
$
3,269,661

Maturities
The amortized cost and fair value of held-to-maturity, available-for-sale and trading fixed maturity securities at June 30, 2018, by contractual maturity, are shown in the following tables. The table below includes investments from continuing operations. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Asset-backed securities, mortgage-backed securities and collateralized mortgage obligations may be subject to prepayment risk and are therefore not categorized by contractual maturity.
Maturities
 
 
 
 
 
 
 
 
 
 
 
 
Held-To-Maturity
 
Available-For-Sale
 
Trading
June 30, 2018
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Due in one year or less
$

 
$

 
$
80,163

 
$
80,314

 
$
1,807

 
$
1,871

Due after one year through five years
150

 
150

 
276,772

 
277,322

 
8,530

 
10,268

Due after five years through 10 years

 

 
481,651

 
479,036

 
1,100

 
1,020

Due after 10 years

 

 
730,046

 
718,091

 
1,267

 
1,546

Asset-backed securities

 

 
3,238

 
3,484

 

 

Mortgage-backed securities

 

 
8,382

 
8,187

 

 

Collateralized mortgage obligations

 

 
231,221

 
225,585

 

 

 
$
150

 
$
150

 
$
1,811,473

 
$
1,792,019

 
$
12,704

 
$
14,705








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Table of Contents

Net Realized Investment Gains and Losses
Net realized gains on disposition of investments are computed using the specific identification method and are included in the computation of net income. A summary of the components of net realized investment gains (losses) is as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Net realized investment gains (losses) from continuing operations:
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
Available-for-sale
$
(219
)
 
$
103

 
$
(193
)
 
$
527

Trading securities
 
 
 
 
 
 
 
Change in fair value
(148
)
 
176

 
(259
)
 
547

Sales
349

 
(11
)
 
905

 
46

Equity securities
1,315

 
524

 
(7,020
)
 
1,921

Real estate

 
289

 

 
289

Total net realized investment gains (losses) from continuing operations
$
1,297

 
$
1,081

 
$
(6,567
)
 
$
3,330

Total net realized investment gains (losses) from discontinued operations

 
1,599

 
(1,057
)
 
3,304

Total net realized investment gains (losses)
$
1,297

 
$
2,680

 
$
(7,624
)
 
$
6,634


The proceeds and gross realized gains on the sale of available-for-sale fixed maturity securities from continuing operations are as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Proceeds from sales
$
23,994

 
$

 
$
23,994

 
$
1,096

Gross realized gains
140

 

 
140

 
1,046

Gross realized losses
(307
)
 

 
(307
)
 

The proceeds and gross realized gains on the sale of available-for-sale fixed maturity securities from discontinued operations are as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Proceeds from sales
$

 
$

 
$

 
$
3,963

Gross realized gains

 

 

 
1,254

Gross realized losses

 

 

 
(78
)
Note: The sale of the life insurance business was completed on March 30, 2018.
There were no sales of held-to-maturity securities during the three- and six-month periods ended June 30, 2018 and 2017.

Our investment portfolio includes trading securities with embedded derivatives. These securities are primarily convertible securities which are recorded at fair value. Income or loss, including the change in the fair value of these trading securities, is recognized currently in earnings as a component of net realized investment gains. Our portfolio of trading securities had a fair value of $14,705 and $16,842 at June 30, 2018 and December 31, 2017, respectively.







16

Table of Contents

Funding Commitment

Pursuant to an agreement with one of our limited liability partnership investments, we are contractually committed through December 31, 2027 to make capital contributions upon request of the partnership. Our remaining potential contractual obligation was $15,380 at June 30, 2018.
Unrealized Appreciation
A summary of the changes in net unrealized investment appreciation during the reporting period is as follows:
 
Six Months Ended June 30,
 
2018
 
2017
Change in net unrealized investment appreciation
 
 
 
Available-for-sale fixed maturities
$
(65,127
)
 
$
32,132

Available-for-sale equity securities

 
11,861

Deferred policy acquisition costs
7,274

 
(3,753
)
Income tax effect
12,148

 
(14,084
)
Net unrealized investment depreciation of discontinued operations, sold
6,714

 

Cumulative change in accounting principles
(191,244
)
 

Total change in net unrealized investment appreciation, net of tax
$
(230,235
)
 
$
26,156

We continually monitor the difference between our cost basis and the estimated fair value of our investments. Our accounting policy for impairment recognition requires other-than-temporary impairment ("OTTI") charges to be recorded when we determine that it is more likely than not that we will be unable to collect all amounts due according to the contractual terms of the fixed maturity security or that the anticipated recovery in fair value of the equity security will not occur in a reasonable amount of time. Impairment charges on investments are recorded based on the fair value of the investments at the measurement date or based on the value calculated using a discounted cash flow model. Credit-related impairments on fixed maturity securities that we do not plan to sell, and for which we are not more likely than not to be required to sell, are recognized in net income. Any non-credit related impairment is recognized as a component of other comprehensive income. Factors considered in evaluating whether a decline in value is other-than-temporary include: the length of time and the extent to which fair value has been less than cost; the financial condition and near-term prospects of the issuer; our intention to hold the investment; and the likelihood that we will be required to sell the investment.
The tables on the following pages summarize our fixed maturity and equity securities that were in an unrealized loss position on a consolidated basis, including both continuing and discontinued operations at June 30, 2018 and December 31, 2017. The securities are presented by the length of time they have been continuously in an unrealized loss position. It is possible that we could recognize OTTI charges in future periods on securities held at June 30, 2018, if future events or information cause us to determine that a decline in fair value is other-than-temporary.
We have evaluated the near-term prospects of the issuers of our fixed maturity securities in relation to the severity and duration of the unrealized loss and determined that these losses did not warrant the recognition of an OTTI charge at June 30, 2018 or at June 30, 2017. We have no intent to sell, and it is more likely than not that we will not be required to sell, these securities until the fair value recovers to at least equal our cost basis or the securities mature.



17

Table of Contents

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2018
Less than 12 months
 
12 months or longer
 
Total
Type of Investment
Number
of Issues
 
Fair
Value
 
Gross Unrealized
Depreciation
 
Number
of Issues
 
Fair
Value
 
Gross Unrealized Depreciation
 
Fair
Value
 
Gross Unrealized Depreciation
AVAILABLE-FOR-SALE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bonds
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury
7

 
$
65,396

 
$
201

 
2

 
$
4,687

 
$
140

 
$
70,083

 
$
341

U.S. government agency
26

 
126,009

 
2,357

 
2

 
7,644

 
355

 
133,653

 
2,712

States, municipalities and political subdivisions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
General obligations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Midwest
13

 
19,600

 
140

 
3

 
19,177

 
913

 
38,777

 
1,053

Northeast
4

 
13,208

 
78

 
1

 
3,534

 
109

 
16,742

 
187

South
17

 
35,461

 
503

 
11

 
28,623

 
1,537

 
64,084

 
2,040

West
12

 
28,125

 
388

 
8

 
24,959

 
1,104

 
53,084

 
1,492

Special revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Midwest
18

 
33,830

 
356

 
7

 
18,510

 
852

 
52,340

 
1,208

Northeast
4

 
12,472

 
120

 
11

 
27,636

 
1,311

 
40,108

 
1,431

South
30

 
61,106

 
1,034

 
26

 
65,618

 
3,423

 
126,724

 
4,457

West
17

 
31,156

 
237

 
21

 
52,290

 
2,232

 
83,446

 
2,469

Public utilities
19

 
39,933

 
1,141

 

 

 

 
39,933

 
1,141

Corporate bonds
 
 
 
 
 
 
 
 
 
 
 
 


 


Energy
7

 
10,465

 
316

 

 

 

 
10,465

 
316

Industrials
8

 
22,206

 
486

 

 

 

 
22,206

 
486

Consumer goods and services
14

 
28,226

 
680

 

 

 

 
28,226

 
680

Health care
4

 
6,489

 
159

 

 

 

 
6,489

 
159

Technology, media and telecommunications
10

 
22,147

 
790

 

 

 

 
22,147

 
790

Financial services
21

 
49,917

 
1,440

 
1

 
5,293

 
306

 
55,210

 
1,746

Mortgage-backed securities
34

 
4,217

 
113

 
11

 
2,012

 
110

 
6,229

 
223

Collateralized mortgage obligations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government national mortgage association
21

 
50,094

 
1,766

 
7

 
11,744

 
884

 
61,838

 
2,650

Federal home loan mortgage corporation
20

 
46,374

 
964

 
7

 
17,556

 
1,080

 
63,930

 
2,044

Federal national mortgage association
17

 
35,019

 
944

 
3

 
6,882

 
361

 
41,901

 
1,305

Asset-backed securities
1

 
2,846

 
79

 

 

 

 
2,846

 
79

Total Available-for-Sale Fixed Maturities
324

 
$
744,296

 
$
14,292

 
121

 
$
296,165

 
$
14,717

 
$
1,040,461

 
$
29,009















18

Table of Contents

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
Less than 12 months
 
12 months or longer
 
Total
Type of Investment
Number
of Issues
 
Fair
Value
 
Gross Unrealized Depreciation
 
Number
of Issues